India business to drive Tata Global Beverages' growth and margins

Addition of consumer biz to bring stability to revenue, profit

The rally in Tata Global Beverages stock, which began in May this year, is expected to continue, given the company’s focus on higher margin India business and sales uptick of the Starbucks joint venture (JV). 

This, coupled with the merger of the consumer business of Tata Chemicals and exit from non-profitable ventures, would add to net profits of the new consolidated entity. Analysts expect net profit after restructuring to grow by an average of 30 per cent annually between 2018-19 (FY19) and 2021-22, and cross the Rs 1,000-crore market at the end of this period. The company ended FY19 with a bottom line of Rs 440 crore. 

While there are multiple triggers, what holds key in the near to medium term is the pace of growth in the Indian tea business. While global tea sales account for three-fourths of consolidated revenue, tea sales in the domestic business accounts for half of overall sales. 

Analysts believe revenue growth opportunities lie in the unorganised tea segment, which accounts for about a third of the domestic tea market. Further, its focus on premiumisation is also expected to support growth, according to Siddhartha Khemka of Motilal Oswal Financial Services.   

The addition of consumer business will expand its product portfolio and revenue base. The company plans to consolidate its position in the salt business and add to its range in spices, pulses, liquid beverages, and packaged food. 

The experience of the incoming Managing Director and Chief Executive Officer Sunil D’Souza could help the company scale up portfolio across the fast-moving consumer goods categories it is operating in. 

While the coffee business is going through near-term challenges, with coffee prices at multi-year lows, the commissioning of the Vietnam plant is expected to boost capacity and add to its earnings. For the Starbucks JV, store expansion and higher gross margins are expected to improve profitability.

While the stock is up 58.5 per cent, analysts believe it has more steam left, driven by higher growth in the Indian market. Synergies with the new consumer business and cost-control efforts are expected to add to margins and cash flows.